This system of consensus by distributed co-operation sounds complicated, but it allows something of value to be transferred from one person to another without a middleman to verify the transaction. To overwhelm the system, someone would need to control 51% of the computing capacity of the 10,000 or so “miners”-not impossible but unlikely. There is no bitcoin central bank to sway them. None of them is connected to any centralised organisation. The definitive version of the blockchain is whatever a majority of the participating computers accepts. Unlike a bank ledger, which can be altered by its owner (or a government), the blockchain cannot be changed without simultaneously overwriting all of the thousands of copies used by the miners at any one time.

And the system is beyond tampering by any one party. In exchange, they are given newly minted bitcoin.Ĭhaining blocks together sequentially prevents anyone spending the same bitcoin twice, a bane of previous digital currencies. Known as “miners”, they authenticate transactions by reaching a consensus on what the latest version of the blockchain should look like. Rewards are high enough for vast data centres across the world to want to participate. Rather, a large number of computers dedicate themselves to keeping the system running. The proposed transactions contained in new blocks do not have to be approved by some central arbiter, as in conventional banking. New blocks are tacked on to the blockchain every ten minutes or so, extending it by a few hundred lines (it is already over 8,000 times the length of the Bible). Units of currency are transferred from one party to another as part of a new “block” of transactions added to the existing chain-hence the name. Identities are protected by clever cryptography beyond that the system is entirely transparent.Īs well as keeping track of who owns bitcoin today, the blockchain is a record of who has owned every bitcoin since its inception. Unlike a bank’s ledger, which is centralised and private, the blockchain is public and distributed widely. The same could be said of how a bank keeps track of how much money is kept in each of its accounts. The coins themselves are not physical objects, nor even digital files, but entries in the blockchain ledger: owning bitcoin is merely having a claim on a piece of information sitting on the blockchain. In essence, the blockchain is a giant ledger that keeps track of who owns how much bitcoin. The “blockchain” technology that underpins bitcoin, a sort of peer-to-peer system of running a currency, is presented as a piece of innovation on a par with the introduction of limited liability for corporations, or private property rights, or the internet itself. Many of them believe parts of Mr Nakamoto’s idea can be recycled for other uses. The technological breakthroughs that made bitcoin possible, using cryptography to organise a complex network, fascinate leading figures in Silicon Valley. Interest in the underlying mechanics of the currency, however, has continued to grow. The general public has not forsaken cash or credit cards. A few online retailers and trendy coffee bars accept it, but its yo-yoing value is one reason why its use in the legitimate economy is barely measurable (though it remains a favourite with drug-dealers).

After spiking at $1,100 in November 2013, its value has dropped to $225 (see chart). Six-and-a-half years on, the bankers may feel they can relax a little. Since the need for a trusted third party has traditionally been a large part of the banks’ raison d’être, this could mean that in future they will no longer be required-potentially a much more radical change than the other inroads fintech has made on their business. Enthusiasts proclaimed that finance was about to enter the era of crypto-currencies. It described what appeared to be a robust framework for a currency that could run without the backing of any government.

On October 31st 2008 Satoshi Nakamoto, a pseudonymous cryptography buff whose real identity remains a mystery, unveiled a project he dubbed bitcoin, “a new electronic cash system that’s fully peer-to-peer, with no trusted third party”. Fintech types are more likely to mention something that happened six weeks later. ASKED TO NAME an event that has reshaped finance in recent years, bankers will point to the collapse of Lehman Brothers on September 15th 2008, the nadir of the financial crisis.

The next big thing 2015